Distribution and Franchising in Brazil IDI Tokyo Luciana Bassani

Transcription

1 Distribution and Franchising in Brazil IDI Tokyo 2014 Luciana Bassani

2 Distribution in Brazil! Distribution agreements (resale) are not ruled by any specific law.! Broadly regulated by the Brazilian Civil Code ( BCC ).! In writing or verbal. No registration is required.! BCC does not provide for minimum terms and conditions or written form. 2

3 Distribution in Brazil! No mandatory renewal or termination conditions;! Under BCC, it may occur by:! (i) expiration of the contractual term;! (ii) termination with cause or due to non-compliance beyond the control of the defaulting party (force majeure); or! (iii) unilateral termination without good cause with prior notice of termination, where applicable. 3

4 Distribution in Brazil! Article 473 of BCC: if any of the parties has made significant investments, the unilateral termination will only be effective after the agreement has been in force for a term compatible with the nature and amount of such investments;! Agreements containing a fixed term cannot be terminated without just cause, unless the agreement specifically and expressly provides for; 4

5 Distribution in Brazil! Even in the event that the agreement provides for termination without any cause, the payment of indemnification may be applicable if insufficient time has passed to recover the investment made;! Agreements entered into for an indefinite time, the termination must also be preceded by 90 (ninety) days prior notice: also, if insufficient time has passed to recover the investment made, compensation may be applicable (Brazilian case law 180 days, for long verbal relationships). 5

6 Brazilian Franchise Law! Brazilian Law No. 8,955/94 (the Brazilian Franchise Law") governs all franchise relationships that are "established and operated in the Brazilian territory."! In fact, the Brazilian Franchise Law solely defines franchising and governs the content of the Franchising Disclosure Document ( FDD ). 6

7 Deadline to Deliver FDD! Article 4 of the Franchise Law requires that a FDD be delivered to the prospective franchisee, at least ten (10) days prior to the execution of any binding document related to the franchise and/or receipt of any payment by franchisor;! The statute of limitations for a franchisee to assert a claim of non-compliance is two years from the delivery of the FDD. 7

8 Consequences of Failure! A failure by franchisor to provide a prospective franchisee with the appropriate FDD renders the agreement void and gives a franchisee the right to demand a refund of all amounts paid by franchisee, plus recovery of damages;! Franchisors tend to be conservative in relation to this requirement as the local law provides for a severe penalty in the event of failure to comply with this legal obligation. 8

9 FDD Content (1) A summary of the background of franchisor; (2) Balance sheets and financial statements of the franchisor (two preceding years); (3) Description of all pending lawsuits involving the franchisor and its affiliated companies, and other franchisees or ex-franchisees relating to the franchise agreement (this applies to lawsuits filed worldwide); 9

10 FDD Content (4) Detailed description of the business; (5) Characteristics of the "ideal franchisee"; (6) Requirements regarding the direct involvement of the franchisee; 10

11 FDD Content (7) Specifications regarding: (a) estimated initial investment (b) initial affiliation fee or franchise fee and (c) estimated cost of the facilities; (8) Clear information regarding periodic fees (royalties; advertising fee; minimum insurance coverage amounts, etc.); (9) Complete listing of all the franchisees and ex-franchisees within the last twelve months (this includes all international franchisees); 11

12 FDD Content (10) With respect to the territory: (a) exclusivity or a right of first refusal; and (b) if the franchisee has the right to sell or render services outside its territory or outside Brazil; (11) List of required suppliers; (12) Description of services and products offered to the franchisee by the franchisor (supervision; training; franchise manuals; assistance on the selection of the location; layout and architectural plans of the facility; etc.); 12

13 FDD Content (13) Status of the licensed trademarks and patents with the Brazilian National Institute of Industrial Property - INPI; (14) Situation of franchisee after termination of the franchising agreement, regarding: a) know-how or industrial secrets; and b) non competition obligations; (15) Draft of the standard franchise agreement, as well as the preliminary franchise agreement, if any. 13

14 Recordal at INPI! Renders the agreement effective against third parties;! Allows remittance of royalties to the foreign franchisor;! Qualifies franchisee for tax deduction;! Franchisor must have at least applied for registration of its trademarks in Brazil, at the INPI; 14

15 Recordal at INPI! Payments: the parties may freely set out the remuneration insofar as it stays within the price commonly practiced in the involved field and in the national and international market.! Controlled companies (parent and subsidiary): payments limited to the corresponding ceiling of fiscal deductibility (Regulation 436/58), which vary between 1% to 5% of the net sales price of products, depending on the technology field. 15

16 Recordal at INPI and Registration at BACEN! INPI s Legal term: 30 days - in practice, 50 days - Certificate of Recordal or an office action requesting further details and clarifications regarding the agreement;! After the Certificate of Recordal is issued, the agreement must be registered with the Brazilian Central Bank for remittance of payments. This registration is a very simple procedure and can usually be accomplished in about 2 days. 16

17 Franchising Scenarios in Brazil 17

18 Choice of Law and Jurisdiction! The parties are free to select a foreign law and jurisdiction to govern the franchise relationship;! However, there are practical difficulties toward enforcing foreign decisions in Brazil (necessary approval by the Superior Court of Justice in Brazil; homologation of foreign judgment - exequatur). 18

19 Indemnification for Goodwill! Recent Court decisions (based on the principle of fairness and unjust enrichment) have recognized the existence of local goodwill, developed through the efforts and expenditures of franchisees and distributors and granted compensation in amounts corresponding to a part of the developed goodwill;! It is common practice to stipulate that the goodwill, including the clientele, belong solely to the manufacturer or licensor. 19

20 Indemnification for Goodwill! As such agreements should not be considered adhesion contracts if the distributor had the opportunity to negotiate its conditions, provision will likely be taken into consideration by the Courts or especially by arbitrators when deciding such matter.! taking into consideration several aspects: (i) the terms of the agreement; (ii) if the franchisor / manufacturer is the owner of a wellknown trademark; (iii) if the franchisee / distributor effectively started and developed the business; (iv) if the franchisee / distributor has prior experience in the business; and (v) if the clientele was attracted due to their particular efforts, etc. 20

21 Distribution and Franchising in Brazil! OBRIGADA! ありがとう 21